The International Monetary Fund upgraded its projection for U.K. growth to 2% for 2017, reflecting stronger-than-expected economic performance since the Brexit vote, said the latest World Economic Outlook.
Published Tuesday, the outlook said the IMF had revised growth upward from January projections for 2017 of 1.5%, and October projections of 1.1%.
The IMF also revised its growth projections for the U.K. for 2018, to 1.5%. In January's outlook it said growth would be 1.4%, and in October it said 2018 growth would be 1.7%.
The U.K.'s performance since the June vote to leave the European Union “points to a more gradual materialization than previously anticipated of the negative effects” of Brexit, the outlook stated. The U.K. grew 1.8% in 2016.
“On Brexit, the scenarios we looked at before the actual vote, which I think were still the right scenarios, were multiple,” said Maurice Obstfeld, chief economist at the IMF, speaking at a news conference about the update. Mr. Obstfeld said one scenario saw financial markets react “with equanimity, in particular because central banks did the right things; but also (there were) possible scenarios in which markets did not react so well.
Mr. Obstfeld said the “pessimistic” scenario of severe market reaction would see world and British output in particular suffer.
While that did not occur, “it is still our belief … there could be some supply side effects on the British economy that will play out over time,” Mr. Obstfeld said, citing the risk of parts of the financial sector moving elsewhere in Europe, affecting business activity and tax revenues. “These effects will be something we will see over time,” he said.
The IMF still thinks “the uncertainty of Brexit is a negative,” and Mr. Obstfeld said he hopes the outcome will minimize trade barriers between the U.K. and Europe. “If that happens that will be a relatively good outcome for both of the negotiating partners,” he said.
The IMF's update is available on the IMF's website website.